Energy Exchange

As shown by the recent special report from the Intergovernmental Panel on Climate Change, emissions from fossil fuel combustion in California and elsewhere present dire consequences for the planet. This means California, like the rest of the world, must take real steps now to shift toward a low carbon future.

Similar to many other developed economies, California has a vast oil and gas delivery infrastructure that is integrated into its modern way of life – a system that supports the combustion of fossil fuels in nearly every corner of society. As a result, making dramatic shifts toward a carbon neutral economy as envisioned in a recent executive order by Governor Brown will take a lot of investment. While this investment is underway, it’s appropriate to also make sure the system that delivers energy to homes and businesses is as environmentally benign as possible.

Last September, the U.S. Department of Energy (DOE) started a conversation on resilience, asking the Federal Energy Regulatory Commission (FERC) to provide new revenues and guaranteed profits to the owners of old, inefficient coal and nuclear power plants to compensate these resources for certain reliability and (undefined) resilience attributes.

FERC swiftly disposed of that proposal in a January 8 order, finding that it was not warranted and would run counter to its pro-market regulatory model. FERC then asked all of the Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) to explain how they are evaluating and addressing resilience within their respective markets.

As recent and ongoing activity regarding fuel security, renewable energy procurement and natural gas infrastructure make clear, the energy system in New England is at a critical juncture, the responses and solutions to which will shape the region’s economy for the next 30 years or more.

ISO-NE, the regional electricity grid operator, released its fuel security study raising legitimate reliability concerns based largely on the sufficiency of pipeline infrastructure and expanding deployment of renewable energy. Meanwhile, the Federal Energy Regulatory Commission (FERC) initiated a comprehensive review of electric system resiliency, including reliability and fuel security. Read More »

Earlier this month we—a team of economists at EDF, UC Santa Barbara, University of Wyoming and Vanderbilt University—released a new study on the natural gas pipeline markets in New England which revealed a distinctive pattern showing that local gas utilities owned by two companies—Eversource and Avangrid—routinely ordered large deliveries, then sharply reduced those orders at the last minute. This “down-scheduling” consistently came too late for anyone else to buy that capacity, thus limiting available gas supply in the wholesale market.

One question people ask: Were these two companies acting any differently from other firms, and how can you tell?

We approached this question as we would any research project by thoroughly investigating the data. Over 18 months, we analyzed scheduled gas flows for all 117 delivery points (nodes) on the Algonquin pipeline for every hour of every day in a three-year study period from August 1, 2013 to July 31, 2016, which we downloaded from the pipeline’s public reporting web site. In total, we looked at approximately eight million data points generated from the scheduling patterns of 18 local gas utilities owned by 11 parent companies.

What we found in those public data was clear and irrefutable. Local distribution companies owned by two of those parent companies—and only utilities belonging to those parents—consistently behaved differently than all the others. We don’t know why, but there’s no question that it occurred. The pattern is clear when you visualize the data. Read More »

New England natural gas and electricity prices have undergone dramatic spikes in recent years, spurring talk about the need for a costly new pipeline to meet the region’s needs as demand for gas seemed ready to overtake suppliers’ available capacity to deliver it. For example, during the polar vortex of 2013-14, the gas price at New England’s main gas trading hub regularly exceeded $20/MMBtu (million British Thermal Units, the measure commonly used in the gas industry) and reached a record high of $78/MMBtu on January 22, 2014, compared to the annual average of $5.50/MMBtu.

In an efficient market, we would indeed expect prices to be high during events like the polar vortex. We would also expect pipelines delivering gas to regions like the Boston area – in this case the Algonquin Gas Transmission (AGT) pipeline – to be fully utilized. But this is not what we observed when we analyzed the scheduling patterns on the AGT pipeline from 2013 to 2016.

What 8 million data points told us about artificial shortages

Our research group spent 18 months looking at eight million data points covering the three-year period from mid-2013 to mid-2016. We discovered that during this period, a handful of New England gas utilities owned by two large energy companies routinely scheduled large deliveries, then cancelled orders at the last minute. These scheduling practices created an artificial shortage when in fact there was far more pipeline capacity on the system than it appeared. Read More »

Our dramatic seasonal temperature fluctuations here in New England create a unique energy challenge. Most days of the year (i.e. spring, summer, and fall), we have enough pipeline capacity, or space, to meet electricity and heating demand. However, approximately 40 days out of the year natural gas pipeline capacity becomes scarce, and in certain hours, unavailable; and the system relies on storage to maintain sufficient gas supply and delivery to homes, businesses, and electric power plants.

Many people look at the region’s pipeline constraints and assume that the only solution is to build more pipelines. This is a logical reaction, but it overlooks an opportunity to explore multiple solutions in a more economical and holistic way. Rather than only looking at pipeline solutions, why not broaden the solution conversation by calling forth market competition?

The grid needs to foster participation by all resources

All resources can help ensure reliability during those key hours when pipelines are constrained. By allowing resources, such as batteries, pumped storage, demand response, and LNG, to compete, market forces can be used to fill in gaps, reward resources that are flexible and available to meet peak demand, and ultimately signal to investors when and where right-sized investments are needed. Read More »